[Federal Register Volume 64, Number 136 (Friday, July 16, 1999)]
[Notices]
[Pages 38510-38525]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18174]



[[Page 38509]]

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Part III





Department of the Treasury





_______________________________________________________________________



Fiscal Service



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Federal Agency Disbursements; Electronic Funds Transfer; Notice

  Federal Register / Vol. 64, No. 136 / Friday, July 16, 1999 / 
Notices  

[[Page 38510]]



DEPARTMENT OF THE TREASURY

Fiscal Service
RIN 1510-AA56


Electronic Transfer Account

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Notice of Electronic Transfer Account features.

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SUMMARY: The Debt Collection Improvement Act of 1996 (Act) amends 31 
U.S.C. 3332 to provide that, subject to the authority of the Secretary 
of the Treasury to grant waivers, all Federal payments, other than 
payments under the Internal Revenue Code, must be made by electronic 
funds transfer (EFT) after January 1, 1999. The Department of the 
Treasury (Treasury) published a final rule implementing this mandate, 
31 CFR Part 208 (Part 208), on September 25, 1998. 63 FR 51490. Part 
208 provides that any individual who receives a Federal benefit, wage, 
salary, or retirement payment is eligible to open an Electronic 
Transfer Account, or ``ETASM,'' at any Federally insured 
financial institution that elects to offer ETAsSM. This 
notice describes the required features of the ETASM. In 
addition, Treasury is publishing, as an appendix to this notice, the 
ETASM Financial Agency Agreement (FAA) that Treasury will 
enter into with financial institutions that offer ETAsSM.

DATES: This notice is effective July 16, 1999.

ADDRESSES: This notice is available on the Financial Management 
Service's ETASM web site at the following address: http://
www.fms.treas.gov/eta.

FOR FURTHER INFORMATION CONTACT: Sally Phillips, Senior Financial 
Program Specialist, at (202) 874-7106; Matthew Friend, Financial 
Program Specialist, at (202) 874-7032; Natalie H. Diana at (202) 874-
6590; Cynthia L. Johnson, Director, Cash Management Policy and Planning 
Division, at (202) 874-6590; or Margaret Marquette, Attorney-Advisor, 
at (202) 874-6681. In addition, inquiries about the ETASM 
may be submitted electronically via e-mail to 
[email protected] or by filling out an inquiry form 
available on the ETASM web site at http://www.fms.treas.gov/
eta. Financial institutions may call 1-888-ETA-FRBK (382-3725) for more 
information about enrolling in the ETASM program.

SUPPLEMENTARY INFORMATION:

A. Background

    On September 25, 1998, Treasury issued Part 208, which provides, in 
part, that any individual who receives a Federal benefit, wage, salary, 
or retirement payment shall be eligible to open an account called an 
ETASM at any Federally insured financial institution that 
chooses to offer ETAsSM. 63 FR 51490, 51504. The 
ETASM has been developed to maximize opportunities for 
individuals required to receive Federal payments electronically to have 
access to an account at reasonable cost and with the same consumer 
protections available to other account holders at the same financial 
institution.
    On November 23, 1998, Treasury published for comment in the Federal 
Register a notice setting forth proposed terms, conditions, and 
attributes of the ETASM (hereafter the ``Notice''). 63 FR 
64820. Treasury received 198 comment letters in response to the Notice. 
Comments were received primarily from financial institutions, financial 
institution trade associations, and consumer and community-based 
organizations. Recipients, non-financial institution trade 
associations, non-financial institution payment service providers, and 
Federal agencies also commented on the Notice.
    The majority of comments on the proposed ETASM features 
were supportive of Treasury's efforts to design a low-cost account for 
those recipients without accounts at financial institutions in order to 
bring them more fully into the financial services mainstream. The 
comments reflected divergent views on many proposed ETASM 
features, including account eligibility, fees associated with the 
account, number of cash withdrawals, methods of access, and whether a 
monthly statement should be provided. Comments were also divided on the 
question of whether to allow financial institutions the option of 
offering, as part of the ETASM, certain additional features 
at an additional cost, if any, to the recipient.
    Based on the comments received, Treasury has developed a listing of 
required attributes and optional features for the ETASM, 
which are the subject of this notice. In addition, Treasury is 
publishing, as an appendix to this notice, the FAA that Treasury will 
enter into with each financial institution that elects to offer 
ETAsSM.

B. Compensation to Financial Institutions

    In order to maximize the number of financial institutions that 
choose to offer ETAsSM, Treasury will offer financial 
institutions compensation to establish the account. Treasury will 
reimburse each financial institution that offers the ETASM a 
one-time fee of $12.60 per account established, in order to offset the 
costs of setting up the account. The fee will be paid regardless of 
whether the recipient has or had an existing account.
    Financial institutions that commented on the proposed amount of 
compensation were divided as to whether $12.60 is adequate to cover the 
cost of opening the account. However, almost all financial institutions 
that commented on this question agreed that the amount of compensation 
should not depend on whether the customer is new or existing, pointing 
out that the costs of opening the account are the same in either 
circumstance. Comments from some consumer organizations similarly 
stated that the amount of compensation paid should not differ based on 
whether a recipient has or does not have an existing account.
    There was little comment on the question of whether compensation 
should increase as the number of accounts opened increases. In general, 
large financial institutions favored increased compensation whereas 
small institutions did not. Treasury has determined that a standard 
compensation amount of $12.60 per account is appropriate regardless of 
the number of ETAs' a financial institution opens.

C. Availability of ETAsSM

    In order to provide a convenient source of information for 
recipients regarding the availability of ETAsSM, Treasury 
will maintain and make publicly available to recipients and program 
agencies, by telephone and other electronic means, a list of 
participating ETASM providers. In addition, financial 
institutions offering ETAsSM will be required to display 
prominently a logo to be supplied by Treasury indicating that the 
ETASM is available at that financial institution.
    Some financial institutions have indicated that they already offer 
low-cost accounts that may meet the requirements for the 
ETASM and have inquired whether they can receive 
compensation for offering those accounts. Any account that has the 
attributes set forth in this notice can qualify as an ETASM 
provided that the financial institution opens the account after 
entering into an FAA with Treasury, and that the account is identified 
to the public as an ETASM. As with all other 
ETAsSM, a low-cost account that is designated as an 
ETASM may offer only those features set forth in this 
notice. It may not offer additional features, such as a check writing 
feature, even if the cost of providing such a feature falls within the 
maximum

[[Page 38511]]

monthly fee. Compensation for opening these accounts will be provided 
to the financial institution on the same basis as for opening all other 
ETAsSM.
    Some commenters on the Notice asked whether Community Reinvestment 
Act (CRA) credit would be available for financial institutions that 
offer ETAsSM. The Federal Financial Institutions Examination 
Council recently supplemented and republished in the Federal Register 
its Interagency Questions and Answers Regarding Community Reinvestment. 
Interagency Question & Answer 3 addressing Secs. __.12(j) 1 
and 563e.12(i) has been amended to state that providi ng 
ETAsSM qualifies as a community development service. See 64 
FR 23618, 23630 (May 3, 1999).
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    \1\ The Interagency Questions and Answers employ an abbreviated 
method to cite to the relevant regulations. Because the CRA 
regulations of the four Federal banking agencies are substantially 
identical, corresponding sections of the different regulations 
usually bear the same suffix. Therefore the Interagency Questions 
and Answers typically cite only to the suffix. See 64 FR 23618, 
23619.
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D. Summary of ETASM Attributes

    After considering the comments received, Treasury has determined 
that the ETASM account will have the following attributes. 
These attributes are explained in more detail below. The 
ETASM shall:
     Be an individually owned account at a Federally insured 
financial institution;
     Be available to any individual who receives a Federal 
benefit, wage, salary, or retirement payment;
     Accept electronic Federal benefit, wage, salary, and 
retirement payments and such other deposits as a financial institution 
agrees to permit;
     Be subject to a maximum price of $3.00 per month;
     Have a minimum of four cash withdrawals and four balance 
inquiries per month, to be included in the monthly fee, through (a) the 
financial institution's proprietary (on-us) automated teller machines 
(ATMs),2 (b) over-the-counter transactions at the main 
office or a branch of the financial institution, or (c) any combination 
of on-us ATM access and over-the-counter access at the option of the 
financial institution; 3
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    \2\ As explained below in the discussion of ETASM 
attributes, the term proprietary (on-us) ATM refers to an ATM which 
a financial institution's customers may use without being subject to 
a fee of any kind, including a surcharge.
    \3\ Financial institutions may provide additional withdrawals or 
balance inquiries at no charge or for a fee.
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     Provide the same consumer protections that are available 
to other account holders at the financial institution, including, for 
accounts that provide electronic access, Regulation E protections 
regarding disclosure, limitations on liability, procedures for 
reporting lost or stolen cards, and procedures for error resolution;
     For financial institutions that are members of an on-line 
point-of-sale (POS) network, allow on-line POS purchases, cash 
withdrawals, and cash back with purchases at no additional charge by 
the financial institution offering the ETASM;
     Require no minimum balance, except as required by Federal 
or State law;
     At the option of the financial institution, be either an 
interest-bearing or a non-interest-bearing account; and
     Provide a monthly statement.

E. Discussion of ETASM Attributes

Individually Owned Account at Federally Insured Financial Institution

    Treasury proposed in the Notice that the ETASM be an 
individually owned account established at a Federally insured financial 
institution. Many commenters stated that the account should be 
available as a jointly held account at the option of the recipient in 
order to maximize the utility of the account. Other commenters asked 
that Treasury clarify whether or not the ETASM could be held 
by a representative payee receiving payments on behalf of the 
recipient.
    It was not Treasury's intention to require that ETAsSM 
be titled only in the name of the recipient. By characterizing the 
ETASM as an individually owned account, Treasury intended to 
indicate that the ETASM would not be a Treasury owned 
account or an account owned by a corporation, organization, or other 
entity. An ETASM may be titled in any way that meets the 
requirements of 31 CFR 208.6 and 31 CFR 210.5, except that an 
ETASM may not be established in the name of a corporation or 
other entity. 31 CFR 208.6 and 31 CFR 210.5 provide that all Federal 
payments, other than vendor payments, made by electronic funds 
transfer, including those made through an ETASM, shall be 
deposited into an account at a financial institution in the name of the 
recipient, with certain exceptions, including payments made to a 
representative payee. As discussed in the supplementary information 
accompanying the promulgation of 31 CFR Part 210, 210.5 does not 
require that the recipient's name be the only name on the account, and 
thus would not prohibit the use of a joint account.
    Most consumer organizations supported the requirement that 
financial institutions be Federally insured as an important consumer 
protection. Several credit unions commented that credit unions which 
are privately insured should be permitted to offer ETAsSM.
    Treasury believes that Federal deposit or share insurance is an 
important consumer protection which should be afforded to 
ETASM holders. Accounts at institutions that are insured by 
the Federal Deposit Insurance Corporation (FDIC) or National Credit 
Union Administration (NCUA) are insured for the full amount in the 
account, up to $100,000. In contrast, accounts at some institutions 
that are other than Federally insured are insured for only 50% of the 
amount in the account. In addition, Federally insured financial 
institutions are subject to comprehensive Federal regulation and 
oversight through examinations for safety-and-soundness and compliance 
with consumer protection laws. Accordingly, Treasury is requiring that 
in order to be eligible to offer ETAsSM, a financial 
institution must be Federally insured.
    As proposed in the Notice, financial institutions offering 
ETAsSM are prohibited under the FAA from entering into 
arrangements with non-financial institutions to provide access to 
ETAsSM, other than access through a national or regional 
ATM/POS network. Treasury continues to be concerned that such 
arrangements might be confusing or misleading to recipients and, 
therefore, will not permit financial institutions to enter into such 
arrangements with respect to the offering of the ETASM.

Available to any Individual Who Receives a Federal Benefit, Wage, 
Salary, or Retirement Payment

    With two exceptions, a financial institution that chooses to offer 
ETAsSM must open an ETASM for any recipient of a 
Federal benefit, wage, salary, or retirement payment who requests an 
ETASM and who, by enrolling through the institution in the 
Federal Government's Direct Deposit program, agrees to have such 
payments electronically transferred to the ETASM. Each 
financial institution may establish its own account-opening procedures 
for the ETASM. For example, some institutions may choose to 
open ETAsSM through a telephone application process whereas 
others may choose to require recipients to apply in person.
    The two exceptions to the account-opening requirement are: (a) A 
financial institution may not open an ETASM for any 
individual if the institution does not have authority under its charter 
to maintain a deposit or share account for the individual (for example, 
where a

[[Page 38512]]

recipient does not meet a credit union's field of membership 
requirements); and (b) a financial institution is not required to open 
an ETASM for any individual if (i) the institution is aware 
that the individual previously was the owner of an ETASM 
that was closed because of fraud at that institution or any other 
financial institution, or (ii) the institution, for reasons of account 
misuse, previously closed an ETASM held by the individual at 
that institution.
    The Notice indicated that financial institutions would not be 
permitted to deny an ETASM to any eligible recipient, and 
that financial institutions would be permitted to close an 
ETASM only in certain circumstances to be delineated by 
Treasury. This requirement drew extensive comment from financial 
institutions.
    In general, financial institutions commented that it is essential 
that they be able to refuse an account to an individual who has a 
history of abusing accounts, such as repeated overdrafts or fraud. Many 
institutions commented that denying accounts to individuals who have a 
history of previous account misuse or credit problems is their primary 
method for reducing the risk of account fraud and losses. Some 
institutions expressed concern that they might be faced with 
overwhelmingly large numbers of ETASM applicants. Other 
institutions commented that the prohibition against denying 
ETAsSM to eligible individuals would impose an unacceptable 
risk of loss to banks and violate bank ``safety and soundness'' 
principles.
    Most consumer organizations, on the other hand, supported making 
the ETASM available to all Federal payment recipients so 
that all eligible recipients would have the opportunity to enter the 
financial services mainstream regardless of their credit history.
    Several financial institutions were concerned with how long they 
would be committed to participating as ETASM providers. Some 
institutions urged Treasury to permit them to offer ETAsSM 
for a ``trial period,'' after which they could close the accounts if 
they were not profitable. Similarly, institutions commented that they 
must have the ability to close an ETASM for overdrafts, 
fraud, or excessive Regulation E claims.
    31 CFR 208.5 provides that any individual who receives a Federal 
benefit, wage, salary or retirement payment is eligible to open an 
ETASM. Treasury believes that it is important to ensure that 
even individuals who may have experienced prior checking account 
management problems or credit problems have access to an 
ETASM. Accordingly, a financial institution will be required 
to open an ETASM for any eligible recipient, regardless of 
the recipient's previous account experience, except where the 
individual has engaged in fraud with respect to another 
ETASM or where the individual has misused an 
ETASM at that same institution. The distinction between 
fraud and misuse in this context is that although a recipient could 
unintentionally or negligently misuse an account in various ways (for 
example, by inadvertently causing an overdraft to the account or 
failing to safeguard a PIN number), fraud represents actions by an 
individual with the intent to obtain funds wrongfully from the 
financial institution (for example, where an individual authorizes a 
third party to withdraw funds from an account using an ATM card and 
then falsely represents to the financial institution that the 
withdrawal was unauthorized). Treasury takes seriously this distinction 
and reserves the right to take corrective action to address any 
violation of the account-opening requirements, including by terminating 
a financial institution's participation in the ETASM 
program.
    Treasury believes that the risk of fraud or misuse of an 
ETASM is minimal because of the way in which the account has 
been designed. For example, as discussed below, the potential for 
overdrafts will be very low, in contrast to a checking account or an 
account with off-line debit card access. In addition, financial 
institutions that provide POS access will be permitted to impose 
overdraft fees (subject to certain limitations discussed below) or 
withdraw a recipient's POS access if a POS card is misused, including 
by overdrawing the account.
    In light of the fact that financial institutions will not be 
permitted to deny an ETASM to an eligible individual except 
in limited circumstances, Treasury recognizes that it is important for 
financial institutions to have the ability to close an individual 
ETASM that is misused. Accordingly, a financial institution 
will be permitted to close an ETASM where the financial 
institution has cause to believe that fraud has occurred in connection 
with the account or that the account has been misused. Any 
determination that fraud or misuse has occurred must be consistent with 
the financial institution's usual criteria for closing accounts. Those 
criteria could include, for example, where the institution determines 
that fraud has occurred after conducting the investigation required 
under Regulation E; excessive overdrafts; negligence in safeguarding an 
ATM and/or POS card or personal identification number (PIN); or failure 
to pay an overdraft within a reasonable period of time.
    In addition to the foregoing provisions, Treasury intends to 
monitor any issues that may arise as institutions begin offering 
ETAsSM and to work with institutions where necessary to deal 
with any unanticipated problems, including working with institutions 
that experience an overwhelming number of requests by eligible 
recipients to open ETAsSM.

Accept Electronic Federal Benefit, Wage, Salary, and Retirement 
Payments and Such Other Deposits as a Financial Institution Agrees to 
Permit

    Treasury had proposed to limit the types of funds that could be 
deposited to an ETASM to electronic Federal benefit, wage, 
salary, and retirement payments. Most commenters supported allowing 
deposits other than electronic Federal benefit, wage, salary, and 
retirement payments into the ETASM. Many financial 
institutions commented that permitting other electronic deposits into 
the ETASM would enhance utility for the recipient. Some 
financial institutions commented that their systems cannot distinguish 
among, and restrict, types of electronic deposits which are sent to an 
account. All consumer organizations supported allowing other electronic 
(and non-electronic) deposits into the account as a way to make the 
account a more meaningful entry into the financial services mainstream.
    In view of the comments received, Treasury will permit (but not 
require) financial institutions to offer recipients the option of 
depositing to the ETASM other funds in addition to 
electronic Federal benefit, wage, salary, and retirement payments. A 
financial institution may choose to limit such other deposits to 
electronic deposits or may allow recipients to deposit cash and/or 
checks in addition to other electronic deposits. Financial institutions 
may specify whether deposits of other funds can be made by mail, at an 
ATM, and/or over-the-counter. Financial institutions may not charge any 
fee in connection with allowing deposits of other funds.

Attachment

    One of the reasons that Treasury had proposed to limit the types of 
funds that could be deposited to an ETASM was to reduce the 
potential that funds in an ETASM would be subject to 
attachment. Several consumer organizations requested that Treasury 
prohibit attachment of all funds. These commenters stated that 
recipients may

[[Page 38513]]

not understand the implications of an attachment, and may be unable to 
organize a defense against the attachment. One consumer organization 
suggested that when presented with an attachment order, financial 
institutions should determine which funds are attachable (or not 
attachable) as a way to assist recipients.
    Financial institutions opposed any shifting of the burden for 
defending against an attachment in this manner. A number of financial 
institutions commented that they should not have any disclosure 
requirement with respect to the potential attachment of 
ETAsSM, noting that this would be expensive and would 
constitute the provision of legal advice, for which they could be 
subject to litigation risk. Some institutions commented that Treasury 
should provide model disclosure language regarding attachment. Others 
commented that it must be made clear that it is not the financial 
institution's responsibility to claim any exemption from attachment.
    Most Federal benefit payments deposited to an account at a 
financial institution, including Social Security benefits, Supplemental 
Security Income benefits, Veteran's benefits, and Federal Railroad 
Retirement benefits, are protected from attachment and the claims of 
judgment creditors by Federal law, subject to certain limited 
exceptions.4 If a financial institution receives an order of 
attachment or garnishment for an ETASM, it must immediately 
send a copy of the order and the name of the creditor and contact 
person, if any, to the recipient. In addition, in order to ensure that 
recipients understand that Federal benefit payments deposited to an 
ETASM generally are protected from attachment, Treasury will 
require institutions that open an ETASM to provide the 
following disclosure, in writing, to the holder:

    \4\ See 42 U.S.C. 407(a); 42 U.S.C. 1383; 38 U.S.C. 530; and 45 
U.S.C. 231m(a). The prohibition against attaching such funds is 
subject to certain exceptions, including to satisfy child support 
and alimony obligations. See, e.g., 42 U.S.C. Sec. 659. Philpott v. 
Essex County Welfare Board, 409 U.S. 413, 416 (1973).
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    Many Federal benefit payments, including Social Security 
benefits, Supplemental Security Income benefits, Veteran's benefits, 
and Railroad Retirement benefits, are protected from attachment 
under Federal law. This means that your creditors do not have the 
right to have these funds taken out of your ETASM. There 
are a few exceptions, however. For example, funds in your 
ETASM can be taken to satisfy child support or alimony 
obligations you owe. [If you deposit funds other than Federal 
benefit payments to your ETASM, your creditors may be 
able to have those funds taken out of your account, but your Federal 
benefits would still be protected.] 5
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    \5\ This sentence must be included only if the financial 
institution permits the recipient to deposit into the 
ETASM funds other than Federal benefit, wage, salary, and 
retirement payments.
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    If we/[name of Institution] receive an order of attachment, 
garnishment, or levy, we will immediately send you a copy of the 
order and the name of the creditor and contact person, if any.
    If you have questions about a creditor's right to remove funds 
from your ETASM, contact your benefit agency or your 
local legal services organization.

Set Off

    Treasury had proposed to prohibit financial institutions that elect 
to offer ETAsSM from exercising any right of set off against 
an ETASM, with the exception of the monthly account fee or 
charges for additional cash withdrawals or balance inquiries. All 
consumer organizations who commented on the issue opposed any right of 
the financial institution to set off funds held in an ETASM 
under any circumstances. In contrast, financial institutions strongly 
objected to any prohibition against their right of set off. They argued 
that a financial institution's right of set off is essential to 
mitigate the risks posed by overdrafts, amounts mistakenly credited to 
an account, and amounts provisionally credited to accounts as required 
under Regulation E. They also argued that prohibiting set off will 
reduce the incentives for cross selling other bank services to 
recipients, thereby reducing the potential profitability of servicing 
these customers and the attractiveness of offering the 
ETASM. Financial institutions commented that eliminating 
incentives for cross selling will reduce the availability of credit and 
other bank services, such as cashing checks, that are often provided to 
customers on the basis of an available account balance. Several 
institutions requested clarification as to whether the prohibition 
against set off would prevent recipients from pledging the account or 
having automatic loan payments debited from the account.
    In response to the comments requesting clarification of Treasury's 
intent, Treasury will permit financial institutions to deduct from an 
ETASM amounts representing certain obligations of the 
recipient that are directly related to the maintenance of the 
ETASM itself. Those obligations include: (a) The monthly 
fee; (b) any other fees incurred by the recipient in connection with 
the maintenance of the ETASM; (c) any amount mistakenly 
credited to an ETASM to which the recipient has no legal 
right; (d) the amount of any overdraft on an ETASM; and (e) 
any amount for which the recipient is liable under Regulation E, 
including any amount provisionally credited to the ETASM for 
which the financial institution determines, after conducting the 
investigation required under Regulation E, that the recipient is 
liable.
    Treasury will not permit financial institutions to set off against 
an ETASM obligations incurred by a recipient in connection 
with other products or services offered by the institution. In response 
to questions raised by commenters, this prohibition means that 
recipients may not pledge the account or have automatic loan payments 
transferred from the account to another account. Treasury encourages 
financial institutions offering ETAsSM to market other 
products and services to recipients, but will not allow payment for 
such products and services to be set off against the account.

Subject to a Maximum Price of $3.00 Per Month

    Financial institutions that choose to offer ETAsSM may 
charge a fee not to exceed $3.00 per month. Treasury will evaluate the 
appropriateness of this fee from time to time, and will make 
adjustments periodically as warranted. All attributes listed in the 
``Summary of ETASM Attributes'' section of this notice must 
be included within the monthly fee to the recipient.
    In general, consumer and community-based organizations commenting 
on the Notice favored the establishment of a maximum monthly fee for 
the ETASM. Some of these organizations expressed a concern 
that $3.00 a month would be too expensive for some recipients. On the 
other hand, many financial institutions indicated that $3.00 per month 
would not cover the costs of maintaining the ETASM as 
proposed. A number of financial institutions requested clarification 
that they would be allowed to charge additional fees for account 
research, card replacement, overdrafts, cashier's checks, money orders 
and other special services. Consumer organizations urged Treasury to 
regulate any fees for additional withdrawals so they do not exceed 
actual financial institution costs or some other reasonable cost.
    Treasury believes that $3.00 represents a reasonable maximum 
monthly fee for the ETA.6 However, in

[[Page 38514]]

recognition of costs that may be incurred by financial institutions for 
providing services beyond those required by this notice, Treasury will 
permit financial institutions to charge the holder of an 
ETASM for other services for which the institution usually 
charges fees to its customers. Examples of such fees include fees for 
ATM withdrawals in excess of four per month; replacement card fees; and 
account research fees. Financial institutions may impose such fees at 
their customary rates, except that the amount of any overdraft fee may 
not exceed $10.00. In addition, a financial institution may not charge 
a recipient more than one overdraft fee during a 24-hour settlement 
period even if several items on the recipient's account are returned 
during that period. Treasury believes that $10.00 represents a fee 
that, in the context of the ETASM, is reasonable both for 
financial institutions and recipients, particularly in view of the very 
limited risk of overdraft in the ETASM.
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    \6\ In response to a question raised by some credit unions, 
Treasury will not regard the membership share which an individual is 
required to purchase in order to become a credit union member to 
constitute a fee. Treasury understands that the membership share is 
returned to the individual when the account is closed.
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    Prior to opening an ETASM, a financial institution must 
clearly and conspicuously disclose, in writing, the amount of any 
applicable fees to the recipient, as described more fully in the FAA.

Have a Minimum of Four Cash Withdrawals and Four Balance Inquiries Per 
Month Included in the Monthly Fee

    Access to funds and balance information may be provided by 
ETASM providers through one of three methods: (1) The 
financial institution's proprietary (on-us) ATMs, (2) over-the-counter 
at the ETASM provider's main office or branch locations, or 
(3) through a combination of ATM and over-the-counter transactions. In 
addition, access to balance information may be provided over the 
telephone or, if the recipient agrees, through other electronic means. 
Any of these methods may be used at the option of the financial 
institution as long as a minimum of four cash withdrawals and four 
balance inquiries are provided within the $3.00 monthly fee and 
provided that, as discussed below, institutions that are members of on-
line POS networks provide on-line POS access.
    A majority of consumer organizations supported the proposed methods 
of access to the account, although some commented that the number of 
cash withdrawals included in the monthly fee should be increased. 
Financial institutions generally commented that two or three 
withdrawals per month would be more reasonable in light of the cost 
structure of the account. Some financial institutions requested 
clarification on the meaning of ``proprietary'' ATMs.
    By using the term proprietary (on-us) ATMs, Treasury is referring 
to those ATMS which a financial institution's customers may use without 
being subject to a fee of any kind, including a surcharge. In 
determining the number of cash withdrawals and balance inquiries to 
include in the monthly account fee, Treasury weighed the advantages of 
providing multiple withdrawals and inquiries against their cost, 
recognizing that the more transactions provided, the higher the monthly 
cost. With regard to transaction fees, it should be noted that Treasury 
is not restricting the imposition of ATM fees or surcharges generally, 
provided that the ETASM holder has four cash withdrawals and 
four balance inquiries within the monthly fee.
    In the Notice, Treasury requested comment on one other kind of 
account access, i.e., whether financial institutions should be 
permitted to offer preauthorized Automated Clearing House (ACH) debit 
capability as an additional feature, at the option of the financial 
institution and at an additional fee, if any, to the recipient. 
Comments from all sources were evenly divided over whether Treasury 
should allow ETASM providers to offer this feature. 
Supporters of the feature pointed to increased utility to the 
recipient, in that it would provide a convenient and cost-saving means 
for recipients to pay certain recurring bills such as utility, 
insurance, and car payments. Some financial institutions commented that 
it is beyond their capability to know about, or restrict, ACH debits to 
the account.
    Institutions that opposed allowing ACH debit capability were 
concerned that the account could compete with other products, that this 
feature would complicate account management and confuse consumers, and 
that the occurrence of overdrafts would increase. Some commenters 
opposing the inclusion of this feature pointed to the potential for 
fraud against the account holder. Commenters observed that ACH debit 
capability could be very expensive for the financial institution, given 
the costs of servicing the account and dealing with customer inquiries.
    In response to the issues raised by commenters as well as low 
public acceptance at this time, Treasury is not including ACH debit as 
a feature of the ETASM, optional or otherwise. However, in 
light of the operational concerns expressed by some commenters, 
financial institutions will not be required to reject preauthorized ACH 
debit transactions, if any, initiated by recipients.

Consumer Protections

    ETAsSM will be subject to those consumer protections 
available to other account holders at the same financial institution. 
Most commenters supported this requirement. Thus, an ETASM 
will be protected by Federal deposit or share insurance, subject to the 
Truth in Savings Act disclosures found in Regulation DD (12 CFR Part 
230) and, if electronic access is provided, subject to Regulation E (12 
CFR Part 205).

For Financial Institutions That Are Members of an On-line Point-of-Sale 
(POS) Network, Allow On-line POS Transactions

    A majority of consumer organizations and other non-financial 
institution commenters supported on-line POS access to the account. 
Many financial institutions opposed the on-line POS access requirement 
because of the cost of providing POS access, as well as the increased 
possibility of overdrafts. Some financial institutions who offer off-
line POS access to customers through VISA Check and MasterMoney cards 
questioned whether they would be required to provide such cards to 
ETASM holders.
    By referring to on-line POS access, Treasury is excluding access to 
the ETASM through off-line debit systems. Treasury is aware 
that off-line debit systems carry the same risks of overdraft as check 
writing capability. Therefore, institutions that generally offer this 
type of POS access to customers are not permitted to offer off-line POS 
access to the ETASM. On-line POS access, in contrast to off-
line, carries minimal risk of overdraft in most situations. For small 
institutions that rely on batch processing for on-line POS access, 
which presents a greater possibility for overdraft, Treasury believes 
that the risk presented is mitigated by the right to offset overdrafts 
against an ETASM, to charge a fee for overdrafts or returned 
items, and to discontinue POS access or close the ETASM for 
repeated overdrafts.
    Financial institutions that provide POS access may not impose a fee 
in connection with POS purchases, cash withdrawals, and cash back with 
purchases. Treasury is aware that some merchants impose fees on 
cardholders for such transactions, and is not prohibiting or regulating 
merchant fees.

No Minimum Balance

    In general, financial institutions may not require that a recipient 
maintain a

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minimum balance in his or her ETASM. The only exception to 
this requirement is where a minimum balance is mandated by Federal or 
State law. For example, in the case of credit unions, under 12 U.S.C. 
1759, a Federal credit union member must subscribe to at least one 
share of stock.
    Consumer organizations generally were supportive of this 
requirement. Most financial institutions did not indicate that a 
minimum balance would be necessary, except in order to support the 
payment of interest on an ETASM, as discussed below.

At the Option of the Financial Institution, be Either an Interest-
bearing or a Non-interest-bearing Account

    Consumer organizations generally supported allowing financial 
institutions to pay interest on the ETASM, though most 
conceded that any interest paid might be negligible. Some organizations 
pointed out that the benefit of interest to recipients could be 
partially or fully offset if additional fees were imposed in connection 
with the payment of interest. A few consumer organizations opposed 
allowing interest because it would complicate the account, indicating 
that the account should be kept simple and understandable in order to 
attract those recipients who have avoided accounts at financial 
institutions in the past.
    A majority of financial institutions were opposed to allowing the 
payment of interest on the ETASM. Many commented that, given 
the pricing structure of the account and the prohibition against a 
minimum balance, it would not be feasible to pay interest on the 
account. Other financial institutions commented that the account should 
be kept simple so as not to confuse recipients. A number of 
institutions indicated that paying interest on the ETASM 
would compete with existing products and therefore they would be 
reluctant to offer the ETASM.
    Treasury believes that the availability of interest-bearing 
ETAsSM could encourage and facilitate savings by low income 
recipients. Treasury believes that recipients may find the payment of 
interest to be an attractive feature that could encourage more 
individuals to sign up for interest-bearing ETAsSM at 
financial institutions that choose to offer them. At the same time, 
Treasury understands that some financial institutions may not find it 
economically viable to offer an interest-bearing ETASM, and 
does not wish to discourage those institutions from offering 
ETAsSM. Accordingly, the payment of interest will be offered 
solely at the option of the financial institution.
    Financial institutions may not require a minimum balance in 
connection with the payment of interest. If a financial institution 
offers both interest-bearing and non-interest-bearing 
ETAsSM, the institution may charge a higher monthly fee for 
the interest-bearing ETASM, than it charges for the non-
interest-bearing ETASM, but in no case may the monthly fee 
exceed $3.00.
    Financial institutions are prohibited by Federal law from paying 
interest (which includes certain premiums and other payments) on demand 
deposit accounts. See, e.g., 12 U.S.C. Secs. 371a, 1828(g), and 
1464(b)(1)(B); 12 CFR Sec. 217.101. In order for a financial 
institution to pay interest (or certain other amounts) on an 
ETASM, it must reserve the right to require the holder of an 
account to provide at least seven days' written notice prior to 
withdrawal of any funds in the ETASM. See 12 CFR 
204.2(b)(3)(ii). (Such accounts are sometimes known as NOW accounts and 
are authorized under 12 U.S.C. 1832(a).) Treasury understands that 
financial institutions rarely exercise this right. In order to ensure 
that ETASM holders are treated like other NOW account 
holders in this respect, the FAA will provide that if a financial 
institution, in order to establish the ETASM as a NOW 
account, reserves the right to require seven days' written notice prior 
to withdrawal of any funds in the ETASM, the institution 
shall not exercise this right with respect to any ETASM 
holder unless the institution requires such notice of all its NOW 
account holders.7
---------------------------------------------------------------------------

    \7\ The legal staff of the Board of Governors of the Federal 
Reserve System has informally advised Treasury that such a 
restriction will not preclude treating the ETASM as a NOW 
account.
---------------------------------------------------------------------------

    In addition, to ensure that recipients are aware of both their 
rights and the financial institution's rights, financial institutions 
that pay interest on an ETASM must provide the following 
disclosure, in writing, to the holder:
    Under Federal regulations, financial institutions that offer 
interest-bearing transaction accounts (including ETAsSM) 
must reserve the right to require you to provide at least seven 
days' written notice prior to withdrawing any funds in your 
ETASM. We/[name of Institution] agree that we will not 
require this notice from you unless we require it for all interest-
bearing transaction accounts we offer.

Monthly Statement

    Most consumer organizations supported the requirement that a 
monthly statement be provided for the ETASM. A number of 
financial institutions objected to the requirement that a monthly 
statement be provided, on the basis of the associated costs. Several 
institutions commented that the statement requirements of Regulation E 
should be adequate. Others commented that balance information via a 
voice response unit or ATM would be more useful to recipients. Some 
said a passbook should be sufficient.
    Treasury believes that it is important to provide recipients with a 
monthly statement, particularly since the ETASM allows for 
POS withdrawals and purchases, and account balances may not always be 
provided in connection with such transactions. A monthly statement will 
facilitate a recipient's ability to track their withdrawals and POS 
transactions and thus be helpful for financial planning and account 
management purposes. The monthly statement may be provided 
electronically (e.g., at an ATM) if the recipient agrees, subject to 
the requirements of Regulation E. See 63 FR 14527, March 25, 1998.

    Dated: July 13, 1999.
Richard L. Gregg,
Commissioner.

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[FR Doc. 99-18174 Filed 7-15-99; 8:45 am]
BILLING CODE 4810-35-C